13th December 2014

FEARS are emerging of a possible office space crunch despite the soaring
skyscrapers framing the ever-changing central business district (CBD) skyline.

No commercial sites were on the confirmed list of the Government Land
Sales (GLS) programme for the first half of 2015 released last week. These
sites go on sale regardless of interest.

This has fuelled concerns in some quarters that despite a slew of new
commercial buildings slated for completion in the next three years, space could
still be in short supply down the line.

Industry players say the new buildings should meet demand for office
space in the Downtown Core - which covers the CBD, City Hall, Bugis and Marina
Centre areas - in the short term.

But some fear a possible crunch, amid an increasingly diversified
profile of tenants looking to set up shop in the core business district.

The Straits Times understands that developers are keen to see more
commercial sites go on sale.

The GLS programme for the first half-year has only a 0.78ha plot in
Marina View and Union Street and a 2.1ha commercial site on the reserve list -
requiring bidders to first submit an acceptable opening offer to trigger a
tender.

The two sites could yield 1.89 million sq ft of commercial space.

"As office developments tend to be large, we do not always need to
supply an office site on the confirmed list every half-yearly," the Urban
Redevelopment Authority (URA) said in response to queries from The Straits
Times.

"New office supply from the GLS programme is intended to meet
demand in the medium term, after factoring in a construction period of about
five years.

"Our supply of office space in the Downtown Core will also need to
be balanced against our efforts to build up new commercial centres outside the
city centre to bring jobs closer to homes."

About two-thirds of 11.8 million sq ft of commercial space are in the
central areas, which will be enough to meet demand "in the next few
years", said URA.

But experts believe supply will be patchy up to 2018. Beyond that, the
lack of new supply is "becoming starkly obvious".

CapitaCommercial Trust's 702,000 sq ft CapitaGreen will be completed by
the end of the year. The 500,000 sq ft office component of the South Beach
integrated project is set to be ready too.

After a dearth of fresh supply next year, about 3.2 million sq ft of
office space - the size of Marina Bay Financial Centre - from four projects is
expected to flood the market in 2016: M+S' DUO in Beach Road and Marina One in
Marina Bay, GuocoLand's Guoco Tower in Tanjong Pagar and UOL Group's 5 Shenton
Way.

The supply will be trimmed yet again in 2017, with just 805,100 sq ft
coming on stream from Frasers Centrepoint's commercial site in Cecil Street and
Tuan Sing's redevelopment of Robinson Towers.

"Historically, it's always been a feast or famine in Singapore's
office space if you look at the supply chart. Landlords and occupiers will have
to time their renewals and leasing plans according to that," noted Mr
Desmond Sim, research head at CBRE, Singapore and Asia Pacific.

The result is that rents of Grade A space - in top-quality buildings -
could pick up at a faster clip in 2018, said Mr Sim.

Already, monthly rents have picked up 17 per cent, from $9.66 per sq ft
(psf) since the trough in the third quarter of last year, to $11.20 psf now.

However, Ms Tan Li Kim, head of research at Cushman and Wakefield,
estimated demand for office space would be 4.4 million sq ft by 2018, against
the 5.3 million sq ft of space that could be available by then, if the upcoming
projects are developed on time.

This supply would be from different office micro markets within, so any
rental fluctuations are expected to even out, she said.

One micro market that has stood out would be the offices in the Marina
Bay precinct, for instance, said Mr Moray Armstrong, executive director of
office services at CBRE.

The URA has made plans for 10.8 million sq ft of new office space under
its Master Plan 2014.

But, as Mr Armstrong put it: "The million sq ft question is where
and when the next landmark Marina Bay development will arise."

THE good
times should be rolling for the Upper Thomson and Springside area, going by the
Urban Redevelopment Authority's Master Plan 2014, say consultants.

Transportation
looks likely to be a key catalyst. The Thomson-East Coast MRT Line, which will
be ready in 2023, will allow residents to commute easily to Marina Bay and
Woodlands, from which they can go to Malaysia.

The North
South Expressway to be completed in 2020 will mean links from Woodlands,
Sembawang, Yishun, Ang Mo Kio, Bishan and Toa Payoh to the central area.

Jobs are
another factor. The creation of employment as part of the Woodlands Regional
Centre plans will make the area more attractive for residential developments,
said Ms Ong Choon Fah, DTZ South-east Asia chief operating officer.

"The
accessibility and amenities coming to this area will be a game changer,"
she added.

The upcoming
Brooks Collection@Springside will have about 153 terrace homes and 60
apartments. The project by Kallang Development was being previewed recently.

Phase 1 of
the development, which will comprise about 39 five-bedroom terrace homes on
sites of 3,477 sq ft to 4,058 sq ft, is likely to get its temporary occupation
permit next December.

A 113,051 sq
ft Government Land Sales site in Lorong Puntong, off Sin Ming Avenue, was won
by China-based Nanshan Group in October. It can yield 280 homes.

Nearby
Teacher's Estate, which will be near the Lentor MRT station on the Thomson-East
Coast Line, is to be developed for landed, low- to medium- and high-rise
private housing, mixed-use developments and shopping amenities, noted Ms Ong.

The Upper
Thomson and Springside area is notable for its greenery. The 6ha Springleaf
Nature Park opened last month on what was once part of a kampung called Chan
Chu Kang Village.

Average
prices in the Springside and Upper Thomson area have ranged from $727 per sq ft
(psf) at Forest Hills condominium to $1,264 psf at Thomson Grand over the past
year. Average monthly rents were from $2.10 psf at Hong Heng Mansions and Thomson
View condominium to $4.70 psf at Meadows @ Peirce.

Even with
increased housing supply, the area is expected to see continued demand from
tenants, given that it has established itself as a quiet and fairly exclusive
zone, said Mr Ong Kah Seng, R'ST Research director.

Non-landed
units accounted for 65.4 per cent of private homes in the mortgagee listings,
including condominiums in prime areas such as Marina Bay and Sentosa Cove, as
well as those in districts 9 and 10.

Source: Channel News Asia / Business

SINGAPORE: There has been a
sharp jump in the number of residential properties put up for sale by
mortgagees. According to property consultancy Colliers International, the total
number so far this year is 123, a seven-fold jump from just 17 in 2013.

Non-landed units accounted
for 65.4 per cent of private homes in the mortgagee listings. These included
condominiums in prime areas such as Marina Bay and Sentosa Cove, as well as
those in districts 9 and 10.

Colliers said the higher
numbers are due mainly to the "stricter regulatory and financing
environment" in Singapore. It also noted that for the first time, shoebox
apartments have been placed on mortgagee listings. Nine such units were put up
for mortgagee sale, compared to none in the previous four years.

All in, a total of 529
properties were up for sale on the Singapore property auction market this year.
Of these, 30 per cent were mortgagee sales - the highest number since 2010.

Weak rental market and rising interest rates
will make financing of properties tougher

MORE
property owners are defaulting on their home loans as the number of properties
put up for mortgagee sale has reached its highest level in five years.

The
situation is likely to worsen amid weak demand for property. Cooling measures
have hammered buying sentiment and a deluge of new units threatens to flood the
leasing market.

In all, 159
properties were put up for fire sale this year - five times the 32 units last
year, according to Colliers International.

While this
was still well below the 270 mortgagee listings in 2008 amid the financial
crisis, this year's tally was the highest since 2010. Homes are put up for
mortgagee sale when financial institutions try to recover their losses after a
borrower defaults on a loan.

"In
addition to buyers having to fork out a higher cash outlay with measures such
as the additional buyers' stamp duty and total debt servicing ratio in place,
there are also concerns of a mounting supply of residential units and an
impending increase in interest rates," said Ms Annie Chan, director of
auctions and sales at Colliers.

About 78,400
new private homes are expected to be completed by 2018, official data shows.
Vacancy rates crept up to 7.1 per cent in the third quarter - the first time since
2006 that they have exceeded 7 per cent.

Heightened
leasing competition has led a string of landlords to accept lower rents.
"The falling yields as a result of the softer rental market have also
deterred investors from committing to a purchase," said Ms Chan.

The impact
has been most pronounced in the luxury segment, where 51 private apartments
were up for mortgagee sale, including in projects like The Sail @ Marina Bay
and Orchard Scotts.

Foreigners
have shied away from the market since a hefty tax of 15 per cent was levied on
their purchases in January last year.

But even
homes in the suburbs have not been spared from the downturn as 53 units were
offered at fire sale prices. These came from The Medley in Telok Kurau, Ris
Grandeur in Pasir Ris, and Haig Court in Haig Road.

Shoebox
units in the suburbs were hit as well: Nine such apartments were put up for
mortgagee sale.

Owners
unable to secure tenants or who had to accept lower rents could have found it
"a stretch" to pay for their home loans, said Ms Chan.

"Owners
holding multiple properties may experience a further cash crunch," she
said.

The value of
properties that will go under the hammer next year is estimated to fall between
$70 million and $80 million, in line with the $72.5 million from the 32 units
sold this year.

THE number
and value of shophouse transactions so far this year is roughly half that of
last year, as demand has been hit by tightened availability of loans, a
compression of shophouse yields and investor interest being diverted to
overseas properties.

Prices in choice locations in the Central Business
District, however, are still holding given the limited supply and the profile
of owners, mostly deep-pocketed investors that are happy to continue renting
out their premises if they cannot reap significant capital appreciation.

CBRE's analysis of URA Realis data shows that 101
caveats have been lodged for shophouse transactions so far this year totalling
S$548 million, down from 206 caveats adding up to S$1.27 billion in 2013.

In the
first half of last year, S$922 million worth of shophouses changed hands;
however the onset of the total debt servicing ratio (TDSR) framework in
late-June 2013 has caused some buyers to hold back their purchase plans.

Shophouse sales slipped to S$347 milion in the second
half of 2013 before easing further to S$277 million in H1 this year and S$271
million so far this half. However, these figures do not include deals involving
sales of shares in special purpose vehicle companies that own shophouse assets,
since caveats are typically not lodged for such deals. An example would be a
S$50 million sale of a row of five shophouses in the CBD this year.

A shophouse in Boat Quay is understood to have been
sold recently for S$9.5 million - which has not been caveated.

Owners who want to sell shophouses may have had to
clip their pricing expectations, say property agents, but actual transacted
prices have been resilient in districts 1 and 2, where the choicest
conservation shophouse stock is located, such as Telok Ayer Street, Club
Street, Amoy Street, Chinatown, Duxton Hill and Tanjong Pagar.

Sammi Lim, CBRE associate director, investment
properties, said: "Despite the decrease in the number of transactions
compared with pre-TDSR, shophouse prices have remained resilient and in fact we
are still observing an overall increase in capital values in choice locations.
Current transacted prices in districts 1 and 2 in the CBD are in the range of
S$2,200 psf to S$2,500 psf of gross floor area (GFA) on average - depending on
land tenure - compared with S$1,800-2,200 psf around May or June last year
before TDSR."

Knight Frank executive director, investment, Mary Sai
also said that transacted prices in Telok Ayer and Chinatown locations are
around S$2,500 psf of GFA - surpassing the S$2,000-2,100 psf in Q1 last year.
"Prices of conservation shophouses in the Central Area and Little India
have held firm - defying our expectations of a price softening in the aftermath
of TDSR and the Little India riot last December.

"However, shophouse prices outside the Central
Area in places such as Geylang, East Coast and Upper Serangoon have softened
about 5-10 per cent (post-TDSR)."

Simon Monteiro, director at Historical Land, a
boutique property agency specialising in shophouses, observed that "those
who are selling shophouses currently are the ones looking to divest a few small
shophouses in various locations and replacing them with a bigger investment,
for example, a row of shophouses; or some investors who just want to cash out
now for retirement reasons".

Even after the TDSR rollout, a few investors have
managed to realise attractive gains from shophouses. For example, a property in
Peck Seah Street was acquired in March last year for S$12.2 million and resold
four months later (before the completion of the sale) for S$16.8 million before
being flipped again in October the same year for S$20.5 million.

Such cases are rare though. Most of those making
sizeable gains have longer holding periods. For instance, a property on Tras
Street that was sold two months ago for S$11.15 million had previously changed
hands for S$7.1 million in May 2012 and prior to that for S$5 million in July
2010, according to caveats data.

Mr Monteiro notes that most shophouses are held by
ultra high net worth (UHNW) owners with very good holding power. "For them
to sell, the values must double or more."

Yields on shophouses have declined as rental increases
have not kept pace with the jumps in capital values.

"Net yields today are around 2-2.5 per cent on
average on commercial shophouses in Districts 1 and 2," said Ms Sai.
"In Q1 2013, they used to be 3-3.5 per cent."

Mr Monteiro said that current sub-3 per cent yields
are "rather unattractive to investors". "If you are a serious
seller, you may have to lower your price expectations to allow the yield to the
buyer to be 3-3.5 per cent. Only then will you see interest."

Industry players note that buyers are also factoring
in expected increases in borrowing costs.

Ms Sai said that a common strategy by landlords is to
lease out the ground floor to a food and beverage (F&B) outlet or as a
showroom, and find office tenants for the uppper floors.

The increase in Grade A office rents has helped to
prop up office rents in shophouses.

"Landlords try to maximise their rental returns
by having one tenant per floor to avoid having to give a bulk discount to a
single tenant occupying the whole building," Ms Sai added.

Investors that acquired shophouses more than five
years ago would be able to comfortably service their mortgage from rental
collection as their purchase price would be much lower than current values, she
said. "But those who bought 1-2 years ago, I think, to their horror, some
of them find they cannot push up the rental much if the rent at the point when
they bought their property was already quite peakish. If they trigger any
further increases, their tenants may not find it sustainable to continue business
at the location."

On the other hand, Zain Fancy, founder and director of
Clifton Real Estate, which owns more than a dozen shophouses in Singapore,
pointed out that it is still possible to spot good investment opportunities.
"A lot of shophouses are under-rented; their owners have not spruced up
the properties in years. So there is a value proposition here.

"By renovating properties, rents go up and hence
prices increase. From the tenants' perspective, renting space in a shophouse
can be attractive. For instance, we're leasing ground floor retail space at
Pagoda Street, a location with very high foot traffic, at S$17-18 psf a month -
a discount to the S$35-40 psf for ground floor space in an Orchard Road mall.

"We have leased an upper-level office floor (of
about 1,200 sq ft) in one of our CBD shophouses at S$8 psf, so that's about
S$10,000 monthly rent - and they get their own toilet and pantry. The occupier
is new to Singapore and was previously operating out of a serviced office,
paying about S$5,000 a month for a space of about 100 sq ft."

Ms Sai too noted that the average shophouse office
rent in the CBD of about S$6-6.50 psf a month is lower than the double-digit
rents in Grade A office buildings.

Street-level F&B space has been the key driver for
growth of shophouse rents, noted Mr Monteiro. "There has been an influx of
cafes and restaurants in conservation shophouses in the CBD for example in the
Duxton, Keong Saik and Gemmill Lane locales, for instance, in the past four or
five years."

Currently, approval from the Urban Redevelopment
Authority (URA) for "eating houses", the planning term for F&B
use, is granted on Temporary Permission of one to three years.

However, Mr Monteiro cautions that "that there
may come a time when, to maintain a mix of trades in the conservation
districts, URA may limit approvals for F&B use in shophouses even in the
CBD". This could potentially cause a reversal of interest in commmercial
shophouses, he added.

Another reason for thinning of shophouse transactions
is that some property investors have been moving away from the Singapore scene
in search of higher yields, say agents.

Still, Singapore shophouses have their attractions.
"Funds and UHNW investors, mainly foreigners, are among the buyers,"
said Mr Monteiro. Investors switching from the residential segment, which has
been hit by cooling measures, also find commercial shophouses an attractive
alternative. There are no restrictions on foreign ownership of shophouses on
sites fully zoned commercial.

Ms Sai points out that despite the already sharp price
appreciation, a shophouse investor paying, say, S$2,500 to S$2,800 psf on GFA
in the CBD will feel comforted knowing that it is still cheaper than the
S$3,000-4,000 psf on average for new strata retail units in city-fringe
locations and at least S$3,000 psf for new strata offices in the financial
district.

Agents say that prices of shophouses in districts 1
and 2 will continue to be supported by the fact that they are mostly well
located - in the business district and near an MRT station.

There is also an increase in demand from end-users
looking to buy and occupy a shophouse for their own business instead of leasing
it out, said CBRE's Ms Lim. "These properties are a limited-edition asset
class as they are designed with a distinctive facade, possess a unique charm
and are steeped in history. Shophouses will continue to be highly sought after.
Transaction values and volumes are projected to increase about 10 per cent in
2015."

Ms Sai too expects the pricing outlook for districts 1
and 2 shophouses to remain resilient next year. "But other areas including
Little India (District 8) and non-central locations may succumb to the impact
of TDSR and the economic situation."

GLOBAL Logistic Properties (GLP) announced that it will co-invest
with GIC to acquire a US$8.1 billion (S$10.6 billion) United States logistics
portfolio from Blackstone. The portfolio consists of 117 million sq ft of space
across 36 major US sub-markets.

This investment into the US might be deemed negative on the onset
as it represents a departure from the group's focus on its core markets of
China, Japan and Brazil.

However, while the US is a relatively new market to the group, we
believe that the main driver for this deal is one of diversity, as the target
portfolio is forecast to deliver stable returns. Operational risk is mitigated
by having an experienced management team to run the business, a final 10 per
cent equity stake which minimises its exposure to around 4 per cent of net
asset value, and expected positive operational performance from higher rental
reversions and expected occupancy uplifts in the medium term.

Keppel DC Reit made a
strong debut on the Singapore Exchange mainboardon Friday,
with its units rising as much as 5.9 per cent to hit an intra-day high of 98.5
Singapore cents. The counter started at 98 cents - against the offer price of
93 cents - when trading commenced at2pm. It closed at 96.5 cents - up 3.8
per cent - after 105 million units changed hands, making it the day's most
actively traded counter.

IN A
much-awaited public float, Asia's first data-centre real estate investment
trust (Reit) made a positive debut on its first day of trading on the Singapore
Exchange (SGX) mainboard yesterday.

Keppel DC
Reit opened a promising five cents or 5.4 per cent higher than its initial
public offering (IPO) price of 93 cents at 2pm yesterday but eased to end the
day at 96.5 cents - a first-day gain of 3.8 per cent, with 105 million shares changing
hands.

Keppel DC
Reit owns eight data centres in total, two of which are in Singapore - Keppel
Digihub in Serangoon North and Keppel Datahub 1 in Tampines. The others are in
Malaysia, Australia, Britain and the Netherlands.

It warned in
its prospectus when it launched its $512.9 million IPO last week that it may
have to give rental rebates to clients if there are service disruptions at its
facilities. Recurrent failures could dent its revenues, it added.

Mr Chua
Hsien Yang, chief executive of the Reit manager, told a briefing last week that
the Reit "will pay a lot of attention to ensure our data centres are run
well and efficiently".

The five new
listings on the Singapore Exchange this month, including Keppel DC Reit, have
generally turned in a weaker performance compared with last month's two IPOs.

The
best-performing December IPO was iFast Corporation, an online fund distribution
company which owns the Fundsupermart.com website. It listed on the mainboard on
Thursday and closed at $1.11 yesterday, 16.8 per cent higher than the IPO price
of 95 cents.

The
remaining three listings this month were on the Catalist board, the exchange's
junior board for smaller public floats. Catalist companies need to appoint a
sponsor to make sure they comply with listing rules, and may often be seen as
riskier investments than their mainboard counterparts.

The
debutants were civil engineering firm Huationg Global, local film producer mm2
Asia and medical glove maker UG Healthcare. UG Healthcare offered some shares
to retail investors in its IPO while Huationg and mm2 did not.

Huationg and
UG Healthcare have made single- digit gains while mm2, which has produced local
blockbusters such as the Ah Boys To Men films, has fallen 14 per cent from its
IPO price.

Both firms
were listed on the Catalist board and saw their stock jump right after their
debut. MS Holdings shares shot up 54 per cent over the first week and Zico
leapt 73 per cent. Neither firm offered IPO shares to the public.

The SGX said
in a MyGateway report sent out to investors earlier this month that the 24
stocks listed from the start of January to the end of November this year have
brought in a total return of 3.3 per cent on average since their IPOs as at the
end of last month. The five IPOs this month are not included.

This number
was just a little lower than the 3.5 per cent average total returns that the 26
companies listed last year have yielded since their IPOs as at the end of last
month. The total return figure includes price appreciation and reinvested
dividends the companies paid out to investors.

Catalist
listings over the past two years have outnumbered mainboard ones.

Out of the
55 IPOs in total since the start of last year, 25 were listed on the mainboard
and 30 went to the Catalist board.

ANYONE
hoping that property cooling measures will be unwound soon will likely be
disappointed, going by signals from the private and public sectors.

One the one
hand, developer Hiap Hoe has been forced to buy units at some of its projects,
including all 48 at Treasures on Balmoral, in the wake of the plunging demand.

On the
other, the Government shows no sign of a U-turn, with various ministers
reiterating that prices have yet to fall to any meaningful degree to warrant a
rethink.

"We do
not expect the prevailing cooling measures will be lifted any time soon,"
said a spokesman for Hiap Hoe, which earlier this week sold the Treasures on
Balmoral flats to its parent company.

Consultants
and developers say that measures addressing financial stability - the total
debt servicing ratio (TDSR) - are here to stay. But if the market weakens
further, there is expected to be calls for tweaking rules on taxation.

"TDSR
is a measure targeted at ensuring prudence among citizens as it takes into account
all types of outstanding debt; it's a good measure that will remain," said
Mr Desmond Sim, CBRE research head for Singapore and South- east Asia.

The idea
that cooling measures will be around for a while has been stated by several
ministers - most recently Deputy Prime Minister Tharman Shanmugaratnam in
October.

He said that
"there is some distance to go in achieving a meaningful correction, after
the sharp run-up in prices in recent years".

While Hiap
Hoe's move to buy units at its projects - including Skyline 360° and Signature
at Lewis - suggests that it would rather pay the Additional Buyer's Stamp Duty
(ABSD) on these transactions than stump up Qualifying Certificate penalties, it
appears to be a rare move for now.

"These
are different times from the global financial crisis. We are still positive in
terms of economic health, and the balance sheets of developers generally remain
strong," said Mr Sim.

Developers
are trying to cut holding costs while giving rebates and other incentives to
move units but there are no distress sales, he said.

Teambuild
Land director Richie Chew suggested revisions for the ABSD levied on
Singaporeans and permanent residents purchasing second homes, whether as future
homes or as investment. "The existing TDSR means they would not be going
beyond what they can afford...Tweaking some of these measures would be
ideal." Sales at its Singa Hills condo have been slow, he noted.

Developer
CapitaLand said it believed the Government would review measures "in a
timely manner."

"With a
resilient economy and policies to support population and economic growth,
demand outlook for new homes over the long term remains positive," a
spokesman said.

R'ST
Research director Ong Kah Seng suggested that it may also be timely to relook
cooling measures for high-end or costlier residential properties, separating
them from mass market private property.

"High
sales and leasing activity in the high-end residential segment would place
Singapore on the world map for investment-grade properties," he said.

SINGAPORE
investment company GIC has agreed to buy an office building now under
construction in downtown Rio de Janeiro in Brazil for an undisclosed sum.

The
acquisition would mark GIC's first wholly owned investment in Latin America,
where 4 per cent of its total assets are parked, according to the fund's annual
report issued in August.

The
building, named Eco Sapucai, is being developed by Hemisferio Sul Investimentos
(HSI), a Brazilian private equity real estate fund manager.

Construction
is expected to be finished in the first quarter of next year, at which point
the deal will be completed.

The deal,
known as a forward purchase agreement, protects GIC should HSI fail to deliver.

Designed by
renowned Brazilian architect Oscar Niemeyer, the 86,060 sq m AAA office
building will comprise 17 office floors, with shops on the ground floor and a
helideck at the top.

Regional
head of Americas at GIC Real Estate Tia Miyamoto said the building is a welcome
addition to GIC's portfolio.

"It is
a quality asset in a prime location. We believe strong demand for this
first-rate office property will translate into a stable income stream which
suits GIC as a long-term investor."

HSI founder
and partner Maximo Lima said the sale allows HSI to focus on its performance in
other properties, such as shopping centres, residential allotments,
self-storage and hotels. HSI holds the largest and most diversified real estate
portfolio in Brazil.

In April,
GIC opened an office in Sao Paulo, Brazil.

The fund had
7 per cent of its assets in real estate globally as of March 31, and has
stepped up its real estate investments in recent months. Malls in New Zealand
and commercial projects in Jakarta, Indonesia, count among GIC's latest
investments.

Earlier this
week, GIC confirmed that it would buy Chicago- based IndCor Properties, one of
the largest owners of United States industrial real estate, for US$8.1 billion
(S$10.6 billion), in a joint investment with warehouse developer Global
Logistic Properties.

Authority
to step up oversight of mortgages, calls on banks to limit growth in home loans
to investors to 10% a year

Source: Today Online / Business

SYDNEY — Australia’s financial services prudential regulator has
called on banks to limit the growth in home loans to investors to 10 per cent a
year, adding that it will step up oversight of mortgages amid surging house
prices in Sydney and Melbourne.

Banks should add a 2 per cent buffer to their home-loan rates and
have an interest-rate floor of at least 7 per cent when assessing a borrower’s
ability to repay a mortgage, the Australian Prudential Regulation Authority
(APRA) said yesterday. APRA will review lending practices in the first quarter
of next year to assess if further action is needed for individual banks,
including increases in capital requirements, it said.

Growth in mortgages to property investors “above a threshold of 10
per cent will be an important risk indicator for APRA supervisors in
considering the need for further action”, the regulator said.

“At this point in time, APRA does not propose to introduce
across-the-board increases in capital requirements, or caps on particular types
of loans, to address current risks in the housing sector,” it added.

Regulators are concerned that speculative buying of homes to rent
is creating an unbalanced housing market. Home loans to landlords account for
more than half of all mortgages, the highest share on record, and housing
prices have soared 13.2 per cent in Sydney in the year through November and 8.3
per cent in Melbourne.

“This is a measured and targeted response to emerging pressures in
the housing market. These steps represent a dialling up in the intensity of
APRA’s supervision,” said the authority’s chairman Wayne Byres.

The regulator said it would also pay particular attention to high
loan-to-income and high loan-to-valuation mortgages, interest-only loans to
owner-occupiers as well as loans with very long terms.

Housing-loan approvals to investors are almost 90 per cent higher
in New South Wales than two years ago and 50 per cent higher over the same
period in Victoria, the Reserve Bank of Australia (RBA) said in its financial
stability review in September. Growth in credit to housing investors was 9.9
per cent in the 12 months through October, said the latest RBA data.

The central bank, having dismissed the idea of macroprudential
measures earlier in the year, said in September that investors were distorting
the market and that it was discussing with regulators, including APRA, on
introducing curbs. The RBA is grappling with the same conundrum that drove its
counterparts from the United Kingdom to New Zealand to tighten lending rules
and slow housing while keeping interest rates low to boost the economy.

“The composition of housing and mortgage markets is becoming
unbalanced, with new lending to investors being out of proportion to rental
housing’s share of the housing stock,” the central bank said. “Strong investor
demand can be a sign of speculative excess.”

The move by APRA comes after the Australian government last month
proposed tightening rules on foreign homebuyers, who may soon need to pay an
application fee of up to A$1,500 (S$1,630) when buying a residential property.
Those who breach ownership regulations will have to forfeit their capital gains
and face civil penalties.

Allianz SE (ALV), Europe’s largest insurer, joined with Manulife Financial Corp. (MFC) in a venture to invest as much as $1 billion in U.S. commercial real estate.

Allianz bought majority stakes in two office buildings in Chicago and Washington from Manulife as part of the deal, according to a statement issued today by Toronto-based Manulife.

“We are excited to start our partnership with Manulife,” Christoph Donner, chief executive officer of Allianz Real Estate of America, said in the statement. “Allianz has ambitious goals to continue to expand its real estate presence in the U.S.”

Allianz is among investors with insurers in commercial properties of the world’s largest economy as values surpass records. AustralianSuper Pty, the country’s largest pension fund, said this month it plans to join Principal Financial Group Inc. to acquire U.S. office buildings. Norway’s sovereign-wealth fund has a commercial real estate joint venture with MetLife Inc.

Manulife, Canada’s largest life insurer, has increased investments in commercial properties as it expands in asset management. It hired Michael McNamara in October as global head of real estate investments.

Allianz, based in Munich, bought a majority stake in 191 N. Wacker Drive in Chicago and 1100 New York Ave. in Washington. Manulife said it will keep minority holdings and manage the properties.

Blackstone Group LP (BX) agreed to sell a majority stake in 39 U.S. shopping centers to joint-venture partner Kimco Realty Corp. (KIM) for $512.3 million in a deal that will almost double the firm’s equity investment.

Kimco will buy Blackstone’s two-thirds interest in the properties, which total 5.6 million square feet (520,200 square meters) and are in New York, Virginia, Texas, Florida, California and Maryland, the real estate investment trust said today in a statement. The transaction is valued at $925 million including debt, the company said.

Blackstone is selling some investments as it markets a new global real estate fund. The New York-based private-equity firm in October 2013 took public Brixmor Property Group Inc. (BRX), the second-largest U.S. shopping center landlord. Kimco, the biggest, has been reducing its number of joint ventures and selling lower-quality assets to simplify its holdings.

“The transformation of our portfolio is in its final stage,” Glenn Cohen, chief financial officer of the New Hyde Park, New York-based REIT, said on an Oct. 29 earnings conference call. “We will continue to mine for acquisitions with redevelopment opportunities, but anticipate being a net seller in the fourth quarter.”

Blackstone bought the interest in the Kimco venture in June 2013 for an implied value of about $733 million including debt from the UBS Wealth Management North American Property Fund, according to a statement at the time. The firm invested about $260 million of equity, according to a person with knowledge of the investment, who asked not to be identified because the financial details weren’t public.

Peter Rose, a Blackstone spokesman, declined to comment.

Kimco’s U.S. occupancy rose 60 basis points to 95.5 percent this year through the third quarter, the company said Oct. 29. A basis point is 0.01 percentage point.

The Korean Teachers Credit Union and TIAA-CREF are staking a claim on Manhattan’s Socony-Mobil building in the first investment of a $1 billion joint venture.

The partners last week acquired a $175 million loan on the landmark office tower across the street from the Chrysler Building, according to Suzan Amato, head of managed accounts and joint ventures in global real estate at New York-based TIAA-CREF. The financing was part of David Werner’s $900 million purchase of the property this year.

Asian investors, seeking higher returns and a safe haven for cash, are the source of some of the global flood of money into Manhattan real estate that’s pushing office-building values to records. While China has been the top Asian buyer in New York, investors from Korea and Southeast Asia are poised for more deals as the relatively shallow real estate markets in their home countries become saturated, according to Amato.

“Asian countries are on a rapid growth trajectory,” she said. “This is a very fertile area for us.”

South Korea is the fourth most-active Asian equity investor in Manhattan property, behind China,Singapore and Australia, according to Real Capital Analytics Inc., a real estate research company.

Rather than buying equity interests in buildings, TIAA-CREF and KTCU are seeking to invest in mortgages backed by office towers, retail properties, warehouses and apartments in major U.S. cities. The venture between the two companies, which manage teachers’ savings in their respective countries, is 51 percent owned by TIAA-CREF and 49 percent held by Seoul-based KTCU.

Prime Assets

“In the Korean investment environment, where interest rates remain low at about 2 percent, we believe this is a good opportunity to diversify the portfolio through investments in prime assets in the United States with strong fundamentals and steady income streams,” Sung-Seok Kang, head of global investments at KTCU, said in an e-mail. “We plan to expand this relationship further into other investment types.”

The Socony-Mobil investment is a mezzanine loan, which is junior to a first mortgage and pays a higher yield to compensate for the risk. Such investors typically have the right to seize the borrower’s equity in the event of default. KTCU last year underwrote $50 million in mezzanine debt on the Seagram Building, another New York landmark.

Mezzanine lending is a complex approach to property investment that not all foreign investors are comfortable with, said Ben Thypin, an analyst at New York-based Real Capital. Koreans typically prefer a direct ownership stake in a property because it gives them more control of the asset, he said.

China Buyers

Asian buyers have been a major force behind climbing real estate values in New York City. Bank of China plans to purchase 7 Bryant Park, a tower under construction by Hines, for about $600 million, a person with knowledge of the matter said this week. China’s Anbang Insurance Group in October agreed to buy the Waldorf Astoria, the 83-year-old Art Deco building occupying an entire block in midtown Manhattan. The $1.95 billion transaction is the largest ever for a U.S. hotel, according to research firm Lodging Econometrics.

With the Federal Reserve poised to raise interest rates for the first time in six years in 2015 -- a potential drag on commercial real estate prices -- top-tier buildings in places like New York are likely to continue to be the most attractive. Properties in large, global hubs are somewhat insulated from the effects of rising rates, according to Thypin, especially the types of assets that Asian investors like KTCU are focused on. They aren’t looking for a quick outsized return, he said.

Capital Preservation

“You invest in a huge office tower in New York because you want a safe place to put your money and a decent return,” over the long-term, he said. “This is more a capital preservation play than it is a capital appreciation play.”

As of October, property sales in Manhattan were on pace to reach $63 billion this year, surpassing the record $62.2 billion from 2007, according to Massey Knakal Realty Services.

A group led by Werner and Mark Karasick acquired its interest in the Socony-Mobil building from Hiro Real Estate Co. The Tokyo-based investor paid $240 million for the world’s first stainless steel skyscraper in 1987 at a time when Japanese companies were making high-profile bets on New York City real estate, according to the Landmarks Preservation Commission.

TIAA-CREF originated the mezzanine loan on the Werner deal and then sold it to the venture when the partnership deal was completed last week, said Daisy Okas, a TIAA-CREF spokeswoman.

The Socony-Mobil Oil Company, founded by John D. Rockefeller in 1882, took up most of the building when it opened in 1956. The firm’s move from its downtown offices helped establish midtown Manhattan as an alternative to the financial district.

Cap Rates

Debt investments like KTCU’s may be gaining appeal as funds seek alternatives to the meager returns being generated by owning top-tier real estate, according to Thypin. Capitalization rates, a measure used to calculate yield on real estate investments, have been falling since 2010, according to Real Capital. The best buildings in Manhattan are yielding less than 4 percent, the lowest since at least 2002.

New regulations that limit banks’ capacity for holding commercial real estate debt are creating room for other lenders, said Peter Sotoloff, a former managing director at Blackstone Group LP (BX)who earlier this year formed Mack Real Estate Credit Strategies, a commercial-property investment fund.

“There is a tremendous opportunity to fill the void,” Sotoloff said at a panel discussion Thursday in New York hosted by Bloomberg LP and accounting firm EisnerAmper.

The venture between TIAA-CREF and KTCU is targeting investments in major metropolitan areas like New York and San Francisco that yield 5 percent to 7.5 percent, according to TIAA-CREF’s Amato.

The growth in property values in those areas is outpacing the recovery in the rest of the country. Prices in the biggest cities are about 13 percent above their 2007 peak, while buildings in small cities and towns are 10 percent below the prior highs, according to the Moody’s/RCA Commercial Property Price index.

“We’re inclined to stay in our target markets rather than chase yields where the long-term bet might not be very good,” Amato said.

Unibail-Rodamco SE (UL) will invest 860 million euros ($1.1 billion) in Hamburg’s HafenCity, Germany’s largest urban development zone, to revive an area where weeds and pond-sized puddles cover construction sites abandoned after the financial crisis.

The company signed an agreement with the city of Hamburg to build the retail and leisure part of a project in the Ueberseequartier, HafenCity’s shopping hub, by 2021, Paris-based Unibail-Rodamco said in a statement today. The development on 184,000 square meters (1.98 million square feet) of land will include stores, offices, housing, a hotel and a cruise terminal.

Hamburg, Germany’s second-biggest city after Berlin, in 2000 began converting 157 hectares (388 acres) of docks and warehouses in HafenCity into 6,000 apartments and commercial space for as many as 45,000 workers. HafenCity’s most prominent and controversial building is the Elbphilharmonie, a concert hall that’s running seven times over budget and is due to open in 2017, seven years behind schedule.

Construction in the Ueberseequartier stalled after the financial crisis scuttled development plans by companies including ING Groep NV, the biggest Dutch financial-services group. Unibail-Rodamco will acquire the development site as part of the deal.